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Tuesday, January 18, 2011

Slowly but surely, mobile banking is entrenching itself

If the bets of banks and mobile operators pay off, before long you should be able to walk into an Airtel or a Vodafone store and open a bank account, deposit or withdraw money from your account.
Besides getting India villages, with its increasing disposable incomes thanks to rural employment guarantee schemes, into the banking fold, mobile banking will also free us from the hassle of carrying cash or cards to pay your driver’s salary or to pay the cabbie or for your grocery.
All that, however, may still be some time away. Not because technology is not available, as leading technology players in the field like mCheck’s president Suresh Anantpurkar will tell you. More because of the inertia related to embracing new modes of payment and security concerns.
“I pay my driver using mobile phone,” says Anantpurkar. “However, until there is a large scale implementation and the population covered by banks expand, it is difficult to say how much time it will take before mobile becomes the preferred mode of payment.”
For now, mobile banking is seeking to take banking beyond cities and towns into Indian villages.
“The current banking system needs to benefit from services like telecom, which is spread across the country with more than 1.5 million retail outlets, covering 85% of the country’s population, and hugely present in the villages,” said a spokesperson for Bharti Airtel, country’s largest mobile operator with over 130 million subscribers.
With only limited number of branches in rural India, banks are now looking to mobile operators for help. At over 60% penetration, mobile telephony has nearly double the reach of banking.
To make things easier, in September RBI allowed for-profit organisations to act as banking correspondents, on behalf of a bank. Earlier only non-profit organisations or individuals were allowed to do this.
Earlier this week, State Bank of India, country’s largest bank and Airtel announced the setting up of a joint venture entity. The `100 crore investment that will go into the effort stands testimony to the stakeholders’ seriousness.
Close on the heels of that announcement came another one about ICICI Bank, nation’s largest private sector bank joining hands with Vodafone Essar Ltd, country’s third largest cellular operator by subscribers, for offering banking services.
“Such large names getting associated with mobile banking will lend more credibility to the possibilities and hopefully acceptance over a period of time,” said Deepak Chandani, chief executive of Obopay Inc, a technology player in the mobile payment space.
What mobile operators like Airtel or Vodafone bring to the table is scale and a means for banks to leverage that scale in an affordable manner.
The mobile operators also stand to gain as trust-based services like banking brings with it a certain customer stickiness that is otherwise hard to get and can be a tool for differentiation in an overcrowded telecom market.
“This also brings in more stickiness with the customer, as this is yet another lifestyle enhancing service that gets added on to our portfolio,” the Airtel spokesperson says.
Regulatory hurdles are also slowly getting removed.
In November, National Payments Corporation of India (NPCI) had launched Interbank Mobile Payment Service (IMPS), which would allow for money transfer on a 24/7 basis. NCPI functions under the Reserve Bank of India.
NCPI’s mobile payment service comes with limits though, at least for now. The limits are Rs50,000 per day for end-to-end encrypted transactions using a high-end phone, or `1,000 per day for unencrypted SMS-based transactions using entry-level phones with limited features.
Currently, nine banks including State Bank of India, ICICI Bank, HDFC Bank, Axis Bank, Union Bank of India, Yes Bank, Bank of India, Corporation Bank and Kotak Mahindra Bank are participating in the service.
How it works? The participating banks assign a unique seven digit Mobile Money Identifier (MMID) number for linking the mobile number and bank accounts of customers who request for mobile banking services.
According to NCPI, currently 40 lakh customers across India have been given MMID. From technology perspective, this is all that is required for enabling money transfer between two bank accounts using a mobile phone. Applications of which include paying the cabbie or your kirana store owner, provided they have a bank account.
Currently, such services are provided free but starting April 1, 2011, NPCI plans to charge 25 paise per transaction. The remitting banks may also start charging from April 1, but the charges are likely to be very nominal.
But an Airtel spokesperson said that it is still too early to talk about the revenue model that may be adopted by the banks and mobile operators.
But the scale is the clue to how even nominal charges can be significant revenue streams for mobile operators and thus an incentive to participate in such mobile banking initiatives. SBI typically opens about 2 million no-frills account every year. With the scale that Airtel brings in, it hopes to push this number to 5 million in the future.
The different sources of revenue that a mobile operator could tap include charges for opening an account, transaction fee for withdrawing or depositing money as well as for paying bills/products/services.
“For mobile banking to become successful, it should be used by the lowest stratas of the society like fishermen etc then only it will be a game changer,” Jaideep Iyer, president, financial management, Yes Bank. “Right now it will be only used by people who are tech-savvy.”
“Mobile banking will become incremental and due to more number of mobile phone users over a period of time the penetration will deepen,” Suresh Sethi, group president - transaction banking, Yes Bank.
Sethi, however, admitted that right now the inter-bank transfers of funds are limited in number. And security is a major concern among users, another bank executive said.
“People will use mobile banking for making small payments. Mobile banking network is not very secure,” TR Chawla, general manager, information technology, Dena Bank.
"Internet banking is more secure and it has been tested.”source